Wednesday, May 29, 2013

More Developments on Swiss Agreement with U.S. (5/29/13)

Developments on this front seem to be moving fast.  The latest report I am aware of is Julia Werdigier and Lynnley Browning, Switzerland to Allow Its Banks to Sidestep  Secrecy Laws (NYT DealBook 5/29/13), here.  Key cxcerpts:
The Swiss government said on Wednesday that it would let its banks sidestep the country’s secrecy laws to disclose names of clients in a move intended to help resolve a long-running dispute with the United States over tax evasion. 
The decision is a turning point in what has been an escalating conflict between the two countries. Switzerland’s finance minister said the move would probably enable Swiss banks to accept an offer by the United States government to hand over client details in exchange for a promise against future legal repercussions. 
“It is important for us to be able to let the past be the past,” Eveline Widmer-Schlumpf, the finance minister, said at a news briefing in Bern, Switzerland. She declined to give any details about the program, but said banks would have one year to decide whether to accept the American offer. 
* * * * 
Ms. Widmer-Schlumpf said on Wednesday that the government would work with Parliament to quickly pass a new law that would allow Swiss banks to accept the terms of the United States disclosure program. She said the new law would make it possible for banks to take part in the program, but that it would be up to each individual bank whether to participate. 
“We expect this to create the base for banks to again gain some room for maneuver so that calm can return to the sector,” she said. “We are convinced that this is a good, a pragmatic solution for the banks to emerge from their past.” 
Ms. Widmer-Schlumpf declined to say how much banks might have to pay. But she said the Swiss government would not make any payments as part of the agreement.
With this development, I am sure that the IRS will be sending a lot of John Doe treaty requests.  I reported on one yesterday involving Julius Baer.  U.S. Treaty Request for Julius Baer Domiciliary Company Accounts with U.S. Beneficiaries (Federal Tax Crimes Blog 5/28/13), here.  That deal which was negotiated before this new development picked off the worst cases -- i.e., the cases with intervening entity classified as a domiciliary company.  With this new development, the question is whether the John Doe treaty requests need be quite so narrow to get the worst cases but will be able to get the less problematic as well.

Addendum 5/29/13 9:34am:

Catherine Bosley, Elena Logutenkova and Giles Broom, Switzerland proposes deal for banks to resolve tax-evasion dispute with U.S. (WaPo via Bloomberg 5/29/13), here.  Excerpts:
Switzerland proposed a bill that it says will provide the legal basis for the country’s banks, including Credit Suisse Group AG and Julius Baer Group Ltd., to resolve a tax-evasion dispute with the U.S. 
The bill authorizes Swiss banks to cooperate with U.S. authorities and transfer information while safeguarding their interests, the government in Bern said in a statement today. The Swiss Parliament will consider the bill as soon as next week and it could come into force on July 1. 
“The urgency is due to the fact that the United States is unprepared to wait any longer with the arrangement for the past for Swiss banks,” the government said. “If a solution is not found soon, Switzerland risks further escalation.” 
 * * * * 
The Swiss government wants to prevent another bank being indicted after Wegelin & Co. pleaded guilty in a Manhattan federal court in January to conspiring to help conceal more than $1.2 billion from the IRS. 
The bill will enable banks to pass on information on business relationships concerning U.S. persons and details on employees who worked with Americans, the government said. It doesn’t allow for the transfer of client data, which can only be passed on through administrative assistance procedures under a tax agreement with the U.S., it said. 
* * * * 
Seems Painful 
“I am convinced that what at first glance seems to be painful for all is better than no solution,” Credit Suisse Chairman Urs Rohner said in an interview with Neue Zuercher Zeitung published yesterday. “To believe that one can just postpone this problem and that it will solve itself isn’t realistic.” 
The Department of Justice is requesting delivery of generic data about closing of accounts and money transfers to help resolve matters, the bill said. Data on bank employees will only be passed on after the persons are informed about the scope and type of data that is being sent, the bill said. 
The banks will set up a fund of 2.5 million francs to support affected employees in particularly harsh cases, the association of banking employees said in a separate statement.
Addendum 5/29/13 10:30am:

Katharina Bart, Switzerland frees banks to settle U.S. tax evasion cases (Reuters 5/29/13), here.  Excerpts (emphasis supplied by JAT):
Switzerland aims to save its banks from heavier punishment in the United States for helping wealthy tax cheats by sidestepping its own famed secrecy laws to let bankers disclose data to U.S. prosecutors. 
A government bill put to parliament on Wednesday would let Swiss banks hand over internal information to U.S. authorities in the hope of avoiding threatened criminal charges - though the banks still face fines likely to total billions of dollars. 
Bankers welcomed the prospect of an exit from years of legal wrangling that has already cost them dear and driven one bank out of business but were disappointed ministers failed to win more clarity from Washington on what settlements they might now expect. Opposition in parliament could yet block the measure. 
* * * * 
It insists banks will still not be allowed to hand over client names - protected by its treasured secrecy law of 1934. 
But the new proposal, valid for a year only, would allow them to hand over so much information on customers' behavior that U.S. officials should be able to identify Americans who have used Swiss bank accounts to evade their taxes. 
* * * * 
Finance Minister Eveline Widmer-Schlumpf said the government wanted to rush the legislation through parliament in June for fear that U.S. authorities could bring criminal charges against large banks and open new investigations into many more banks. 
She said the U.S. Department of Justice would only start offering individual settlements with banks once the Swiss parliament had approved the legal framework. 
* * * * 
The Swiss Bankers Association said it welcomed a deal to clean up the historic problem in the United States but was "alienated" by the lack of detail offered by the Swiss government on what penalties they will face if they now hand over information to negotiate settlements with U.S. prosecutors.
Addendum 5/29/13 4:16pm

Lynnley Browning and Julia Werdigier, Switzerland to Allow Its Banks to Sidestep Secrecy Laws (NYT DealBook 5/29/13 1:24pm), here.  Excerpts are (boldface added by JAT):

The Swiss government said on Wednesday that it would allow its banks to disclose information on American clients with hidden accounts, a watershed move intended to help resolve a long-running dispute with the United States over tax evasion.
The decision, which comes amid widening scrutiny in Europe of tax havens, is a turning point in what has been an escalating conflict between Switzerland and the United States. 
Eveline Widmer-Schlumpf, Switzerland’s finance minister, said the move would enable Swiss banks to accept an offer by the United States government to hand over broad client details and pay fines in exchange for a promise by United States authorities not to indict any banks. 
Disclosure of actual client names and account data, which American authorities have been aggressively seeking, would take place under a taxation treaty between the two countries that the American side has not yet ratified. Banks under criminal scrutiny that agree to cooperate with the decision could still face deferred-prosecution or nonprosecution agreements, a lesser punishment than indictment. 
* * * * 
American clients whose names are handed over by Swiss banks but who have not voluntarily disclosed hidden accounts to the Internal Revenue Service would probably face criminal tax-evasion charges, lawyers said. Dozens of Americans have been indicted or charged in recent years for failing to disclose their accounts. 
* * * * 
Ms. Widmer-Schlumpf hinted that the repercussions for banks that actively helped clients evade taxes after 2009 would be bigger than for those that stopped such activities that year. “All banks knew after 2009 that they can no longer do all sorts of businesses,” she said. 
* * * * 
Also in 2009, Switzerland and the United States signed a protocol amending a 1996 tax treaty governing exchanges of information on Americans suspected of avoiding taxes. While the protocol has been approved by the Swiss Parliament, it has been held up in the United States Senate, blocked by Senator Rand Paul, a Republican from Kentucky. The protocol makes it easier for American authorities to seek client and account data from Switzerland. 
The Swiss decision on Wednesday to turn over any American client names appears to be contingent on the American side passing the protocol. The decision said any names release would “occur exclusively within the scope of administrative assistance procedures based on a valid double taxation agreement.” 
In the meantime, Swiss banks would be free to disclose to American authorities broader statistical data about American clients, like information about business relationships. Such disclosure would then pave the way for banks under criminal investigation to negotiate settlements with United States authorities. 
“This is an important step for the banks; it will apparently allow them to disclose statistical information, such as the number of accounts with U.S. beneficial owners, the number of accounts with foreign corporations or foundations, and the amount of assets under management,” said Scott Michel, a tax lawyer in Washington, D.C. “The I.R.S. and D.O.J. can use this information as the basis for financial penalties under settlement agreements, which might be deferred-prosecution agreements or nonprosecution agreements.” 
The decision also requires Swiss banks that cooperate with the Justice Department to protect their bankers and employees from, among other things, being fired for cooperating. American authorities have indicted more than two dozen Swiss bankers, lawyers and financial advisers in recent years.
JAT Comment:

I bold-faced above the following comment:
American clients whose names are handed over by Swiss banks but who have not voluntarily disclosed hidden accounts to the Internal Revenue Service would probably face criminal tax-evasion charges, lawyers said.
I think that the statement as presented in the article is hyperbole.  In the next few days, I may add some unofficial explanation of why I think it is hyerpbole.  But I just note that observers should not read the claim of "probable" indict too literally.  For example, we don't know the scope of the requests and thus which accounts would be involved.  As I noted in yesterday's blog on the scope of the request to Julius Baer, only entity Swiss domiciliary accounts without Forms 1099 were included.  Perhaps subsequent requests involving Julius Baer or other banks will be broadened.  Still I do caveat that all persons having previously undeclared and noncompliant Swiss accounts should be seeking counsel as to the wisdom of joining the OVDP.

1 comment:

  1. According to Swiss newspapers, it is not too clear what the deal would be, and there seems to be a push to rush the deal through Parliament. Banks would be placed into four groups depending on how much they had in unreported US funds, and there would be fines to be paid by the banks (not the Swiss government.) There are attempts to rush through an agreement without it being very clear as to where the line would be between each group, or what the fines would be. The agreement is seen as good for Group I (the eleven banks under investigation which have been negotiating individually) but not so good for the others.


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